Speech to the Online Retailer Conference

I am pleased to be here at this important conference for the Australian online retail sector.

What your sector does is very important - seizing on the potential of digital platforms to deliver better, faster, more tailored, more responsive and more imaginative shopping experiences for your customers.

Can I congratulate the National Online Retail Association, and your dynamic CEO Paul Greenberg, for organising this event and for your advocacy on behalf of your sector.

I would like to warmly welcome our distinguished international visitors - Andy Dunn from Bonobos, Aaron Smith from Nordstrom and Wellington Fonseca from Gilt Groupe. I know we are all looking forward to hearing your insights into online retail – drawn from your experiences in developing some of the world’s leading brands.

In my opening remarks today I first I want to touch on the factors that are disrupting retail in Australia; next look at how you are responding and seizing the moment; and finally I will argue that Australia’s online retail landscape is rich with opportunity.

Disruption of Retail

Can I start, then, with the uncontroversial proposition that the Australian retail sector is undergoing enormous disruption.   Like many Australians I had part time retail jobs at school and uni – but rather a lot has changed since I worked in the TV and video section of the old Waltons Bond department store near Town Hall in 1985.

The first and most obvious source of disruption has been the internet. In the retail sector, and every other sector of the economy, the disruption of existing players by a better, internet based offering is one of the great constants of modern economics.

Ask Kodak about digital photography; Fairfax about Seek.com.au or Drive.com.au; the free to air TV networks about Apple TV or YouTube; Angus & Robertson about Amazon; Blockbuster about Netflix; or Taxis Combined about Uber.

A recent report from Deloitte Digital found that almost one-third of the Australian economy faces imminent and major disruption due to the transformative power of the digital economy, with retail listed as one of the sectors faced with a “short fuse, big bang” – meaning imminent and major digital disruption.[1]

And of course as online technology develops, the disruption continues. The first phase was home internet over fixed lines; but the last decade has seen the explosion of mobile internet in Australia.

We have one of the highest smartphone penetration rates in the world.[2] In May 2014, nearly three-quarters of Australian mobile phone owners had a smartphone, an increase of 8 per cent on 2013 figures.[3]

And we are using them enthusiastically: 41% of Australian smartphone users have gone online to make a purchase on their smartphone, with more than half of that figure doing so at least once a month.[4] That statistic is nearly two years old so the number will certainly be much higher now.

But while the internet has disrupted retail in every country around the world, I would argue that here in Australia that disruption has been reinforced by two additional factors: the fact that for many years Australian retail did a pretty unimpressive job by world standards; and the fact that Australian customers have become much more sophisticated and demanding over the last thirty years or so.

Until the nineties the Australian retail industry, like many other industries in Australia, was to a significant degree immune from international competition. Most Australians had little practical opportunity to buy from overseas retailers; most did not know what they were missing out on.

I remember travelling to the US as a student, going into one of the big clothing stores like Gap or Banana Republic and being amazed that you could have a choice not just of waist size but also length when buying trousers.

So retail in Australia was particularly vulnerable to disruption from internet-based offerings – and that vulnerability has been reinforced by Australian customers demanding a much higher level of service.   Broader economic changes over the last thirty years have made Australian customers wealthier, more sophisticated, more knowledgeable and more demanding.

In the last thirty years Australia has become a much wealthier country. We travel overseas a lot more than we used to: according to the ABS we did 12 trips overseas for every 100 residents in 1990 and by 2010 this was up to 31.[5] We are enthusiastic adopters of technology with high rates of internet take up and usage.

And economic reforms over the last thirty years have replaced protected monopolies and oligopolies in industries like banking, airlines, telecommunications and many others with much more competitive industry landscapes.

All of these factors have combined to drive customer demand for a much higher level of service and performance from retail. Indeed I was interested to see that Deloitte Digital’s new report on Australian retail observes that Australian consumers have one of the highest appetites for digital engagement in the world.[6]

Increasingly customers have looked to online retail offerings to meet their requirements – whether they be Australian or overseas retailers.

NAB estimates that Australians spent $17.1 billion online in the twelve months to May 2015, equivalent to 7% of spending at traditional bricks-and-mortar retailers and an increase of 9% on the previous year’s figures.[7]

Your Sector’s Response to These Disruptive Forces

How then is the online retail sector in Australia responding to these disruptive forces?

I think you are doing a very good job – with both smaller retailers and some of the biggest brand names in the country delivering innovative and customer-responsive online offerings.

NORA has showcased some good examples at Parliament House in recent years, including Jethro Marks from The Nile, one of the largest book and media sellers on eBay Australia and Taylan Atar from The Farm Store, Australia's biggest online retailer selling to farmers.

Roy Morgan Research reports that over 7.6 million Australians – almost 40% of the population – buy products online in an average month.[8]

Banks and payment systems providers have introduced digital technology at a rapid rate. A good case study is the rapid adoption of paywave technology. Australians have responded enthusiastically to the convenience of being able to make a payment of up to $100 without having to key in a PIN, simply by waving a card over a reader.

Cash payments as a share of all payments have steadily declined in recent years, down from 70 per cent in 2007 to 47 per cent in 2014, according to the Reserve Bank.[9]

The next iteration of these technologies will further increase uptake of cashless payments – in a way which blurs the line between traditional retail and online shopping.

And that line is blurring on other ways too.

On a visit to Silicon Valley last year, I noticed a clear trend for better integration between online sales channels and physical store networks – rather than seeing ‘bricks and mortar’ as an outmoded set of assets which was being destroyed by online.

At eBay’s demonstration centre in San Jose, I saw a case study of a retailer responding to orders placed online by a customer using a smartphone.

The customer’s location was provided to the retailer and combined with data in its inventory control systems to see if there was a store nearby which had the item in stock.

After the customer placed her order, she received a message on her smartphone saying the item could be collected immediately at the nearby store — rather than having to wait days for it to be delivered.

This gives the customer more options; but it also lets a retailer leverage its existing stores, manage its inventory better, and generate more customer traffic into its stores.

Recently in Australia we have seen a rising number of big retailers offer ‘click and collect’ services, where customers shop online then pick up the products in store or from a designated collection location.

The growth of ‘click and collect’ has led to some intriguing partnerships. Big retailers like Woolworths would have once seen online outlets like eBay as competitors: today they offer eBay users the option to collect their products in Woolworths stores.

The service launched with six online retail partners earlier this year, with the aim of expanding to 250 sellers within months of launch.

Beyond just collecting online goods in bricks-and-mortar retail stores, many online-only retailers have decided to make the move into opening storefronts.

Australian success story Shoes of Prey began as a startup with the backing of investors including the co-founder of local software giant Atlassian. Following a successful period online, the company made the move into bricks-and-mortar stores and has expanded from its Sydney base into a number of US retail stores.

The Atlassian link to Shoes of Prey reminded me of a point made by Atlassian co-Founder Scott Farquhar when I invited him to deliver the Bradfield Lecture last year, which I think very effectively highlights why it is so important that we have a vigorous and innovative online retail sector in Australia.

In his speech Scott said:

As a nation, we have the opportunity to be a tech giant in a world increasingly dominated by tech, and we have the risk of missing the boat entirely in a universe where that very same technology is reinventing traditional industries and with it the jobs in those traditional industries.[10]

Software is certainly reinventing retail – and it is good to see that Australian retailers are responding vigorously. I was particularly intrigued to see that Myer CEO Richard Umbers first joined the company as Chief Information and Supply Officer – a very different background to many retail CEOs!

Australia’s online retail environment is rich with opportunity

Let me turn then to the opportunities facing your sector in the future. You will have plenty of experts offering their views over the next couple of days, but let me offer a few quick non-expert observations.

First, online businesses will exploit the internet’s potential for customisation and serving specific niches. I came across some good examples on a recent visit to Telstra's accelerator, muru-D, based in Paddington, in Sydney, which is home to a diverse range of start-ups. There I spoke with one business which serves the inbound Chinese tourist market, offering customised experiences – such as a tour of Melbourne laneways from a local photographer.  Another business, Disrupt Surfing – and Gary Elphick is here today – allowed customers to order surfboards with customised designs.

Second, M-commerce will be increasingly important. The Chinese market offers a glimpse of the future. According to Austrade online consumer spending in China is growing at 50 per cent a year, and it is increasingly driven by consumers using mobile devices rather than PCs. On Alibaba’s Tmall over 40 per cent of transactions are on mobile devices. With Australia’s high penetration of smartphones this is a natural fit for us.

Third, online retail can increasingly be an export story for Australia.

In a world with billions of consumers online, Australian businesses can now serve markets that would have been impossible to reach twenty years ago.

Austrade recently issued ‘E-commerce in China: A guide for Australian business’ which is packed with practical advice about how to use e-commerce marketplaces such as Tmall, JD.com and VIP.com. Consumer E-commerce sales in China reached AUD 500 billion in 2014 and are growing very strongly – so it is a very big market.

The government has been working to create new business opportunities in Asia through Free Trade Agreements with Korea, Japan and China, and we are one of 12 countries negotiating what would be the world’s largest regional trade deal – the Trans Pacific Partnership Agreement or TPP.

Fourth, the internet of things offers new retail opportunities.   For example, if the packaging of a good contains a chip which allows it to be tracked from warehouse to customer, that will give customers increased confidence when buying online.

On a visit to China last week, I met a Perth-based business, Gworld, which is taking this approach with Australian-made wine. When a consumer buys a wine bottle from a winery using their system (which includes special packaging for the bottle incorporating a near-field communications chip) the product can be authenticated when the bottle is opened by waving it in front of a suitable smart phone.

With counterfeit products a big problem in the Chinese market, this gives consumers reassurance that the product is genuine – and communicates valuable information back to the winery about when and where its products are opened.

A fifth factor is improving physical distribution of goods ordered online. While companies like Amazon have previewed science-fiction type ideas like deliveries via drones, locally Australia Post has begun offering services such as MyPost which offers delivery tracking and mobile delivery management, 24/7 Parcel Lockers so people can collect deliveries at their convenience, and ShopMate which allows Australians to order goods from US online stores and forwards those goods to an Australian pickup address.

Conclusion

Let me conclude with the observation that the internet is transforming every industry, and retail is no exception. The work you are doing in Australia’s online retail sector is important and exciting. Customers are voting with their feet and increasingly using online channels.

I hope your discussions over the next two days are productive – and I wish you good fortune in building a vibrant and successful industry.

[1] Deloitte, Digital disruption: short fuse, big bang? September 2012, page 9.

[2] Google ‘Our Mobile Planet’ Report http://services.google.com/fh/files/misc/omp-2013-au-en.pdf

[3] ACMA Communications report 2013–14 series Report 1—Australians’ digital lives p6

[4] Google ‘Our Mobile Planet’ Report, Australia: http://services.google.com/fh/files/misc/omp-2013-au-en.pdf

[5] ABS 4102.0, Australian Social Trends September 2010

[6] DeloitteDigital, ‘Navigating the New Digital Divide: Digital Influence in Australian Retail 2015’, slide 6

[7] NAB Online Retail Sales Index – May 2015 http://business.nab.com.au/nab-online-retail-sales-index-monthly-update-may-2015-11808/

[8] Roy Morgan Research, ‘Online shopping on the rise for most retail categories’, http://www.roymorgan.com/findings/6095-online-shopping-on-rise-201503182332

[9] The Australian, ‘Australia charges towards a cashless economy’ http://www.theaustralian.com.au/business/economics/australia-charges-towards-a-cashless-economy/story-e6frg926-1226942638254

[10] S Farquhar, 2014 JJC Bradfield Lecture, www.paulfletcher.com.au